Hong Kong, Asian stocks on flash sale as valuations slide as fast as during European debt crisis. The rebound may be swift

Hong Kong and Asian stocks are cheapening at the fastest rate in nine years as investors dump blue-chip companies in panic amid the global coronavirus pandemic. The rebound may be swift, going by history.

The average price-to-earning ratio of the Hang Seng Index fell to 9.5 times from 12 times over the past two months, the steepest pullback since August 2011, when the European sovereign debt crisis sparked a global stock market rout, Bloomberg data shows. The multiple for companies in the MSCI Asia ex-Japan Index dropped to 14 times from 17.5 times, reflecting the same speed of erosion in valuation.

The losses have accelerated as companies around the world cautioned about imminent dents to their sales and profits. In Hong Kong, it was preceded by anti-government protests and a technical recession through late last year. Firms ranging from carrier Cathay Pacific Airways to the rail operator MTR Corporation and the city’s largest developer Sun Hung Kai Properties have forecast a slide in earnings this year.

“The market is overselling and fearful,” said Ken Wong, client portfolio manager at Eastspring Investments in Hong Kong. “Looking at which markets are cheap and well below their fair value, Asian equity markets in particular look very attractive.”

Fears over the widening global spread of the coronavirus have triggered a global sell-off, handing investors their worst week since the global financial crisis. While the Hang Seng Index saw its worst weekly loss in more than two years, the slump in the broader Asia ex-Japan market was unmatched since the collapse of Lehman Brothers Holdings in 2008.

“A valuation crisis is playing out,” said Andy Wong, multi-asset senior investment manager at Pictet Asset Management. “Markets cannot properly price risk with fear and uncertainties taking hold.”